On August 3, the Pentagon signed a deal worth more than $3 billion with Lockheed Martin (NYSE: LMT) and Northrop Grumman (NYSE: NOC) to accelerate Patriot and THAAD interceptor missile parts production.
The agreement arrives as the conflict in Iran intensifies and the Ukraine war continues, placing significant strain on existing weapons stockpiles across the U.S. military.
The Centre for Strategic and International Studies recently estimated that the U.S. military had fewer than 1,000 Patriot interceptors and under 250 THAAD interceptors remaining in inventory.
The deal includes a $2 billion framework agreement to accelerate production of PAC-3 MSE by providing critical components, along with a $1 billion agreement to expand the monthly supply of THAAD components over seven years.
The contract establishes Northrop Grumman as the second source supplier of solid rocket motors for the PAC-3 MSE, a role that did not previously exist for the company.
According to the Pentagon’s press release, the framework aims at tripling the production of Patriots and quadrupling THAAD output over the coming years.
This latest agreement follows last week’s announcement of a separate $58.6 billion contract for Lockheed Martin to produce Patriot interceptor missiles, underlining the scale of current U.S. defense investment.
For Lockheed Martin (NYSE: LMT), the deal reinforces the PAC-3 interceptor’s status as a significant pillar of multi-year growth, adding visibility to a backlog that reached a record $230 billion at the end of the second quarter.
Having a second source of solid rocket motors through Northrop is expected to ease delivery bottlenecks as Lockheed targets its planned output expansion, though it introduces a new dependency that carries its own schedule risks.
For Northrop Grumman (NYSE: NOC), the PAC-3 agreement opens a new revenue stream amid investor concerns about core program margins, while the THAAD contract builds on a role the company has held since 2002, providing aft bulkheads, interceptor shell cores, and heat shield assemblies.
Northrop’s operational performance remains a concern, as operating income in two of the company’s four business units declined year-over-year during Q2, and analysts noted that a quarterly earnings beat was substantially driven by a lower tax rate.
The aerospace and defense contractor also faces cost pressures in programs such as the GEM 63XL and SiAW, adding complexity to an otherwise demand-rich environment.
On the institutional side, hedge fund ownership of Lockheed Martin expanded 41% sequentially during Q1, rising from 59 funds to 83 funds, driven by rising global defense spending expectations.
AQR Capital Management held the largest LMT stake at over $911 million, followed by Two Sigma Advisors and D E Shaw with holdings of $815 million and $584 million respectively.
By contrast, 62 hedge funds held positions in Northrop Grumman (NYSE: NOC) at the end of Q1, unchanged from Q4 2025, reflecting steadier rather than aggressive accumulation from institutional investors.
Lockheed Martin and Northrop Grumman trade at forward price-to-earnings ratios of 19.14 and 19.57 respectively, both below the sector median of 21.19, suggesting the stocks may currently be undervalued relative to peers.
LMT presents as the steadier compounder given strong recent quarterly results, record backlog figures, and growing hedge fund interest, while NOC carries higher variance tied to its margin pressures and new program potential.
Both companies, however, remain exposed to the same key risk: a de-escalation in Ukraine or the Middle East could rapidly reduce procurement urgency and weigh heavily on both stocks simultaneously.
